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Gross Domestic Product (GDP)
GDP is the total value of goods and serviced produced by an economy in a given year
compare across countries; compare over time
Which movie had the highest gross of all time? How does "Love Story" (1970) compare?
No adjustment for inflation; adjusted for general inflation (average of all consumer prices); adjusted for movie ticket prices
Box Office Mojo says "Shrek 2" has grossed $437 million; population in 2004 of 294 million; per capita gross = $1.48
"Love Story's" ticket-price-adjusted gross is $430 million; population was 205 million; per capita gross = $2.10
If "Gone with the Wind" had used today's ticket prices, gross would be $1.2 billion, compared to Titanic's actual gross of $600 million and adjusted gross of $788 million
Nominal GDP = unadjusted gross
Inflation = change in ticket prices
Real GDP = gross adjusted for inflation
Nominal GDP is the dollar value of all goods and services produced in the economy. For example, suppose that the entire economy consisted of movies, and $4.2 billion of tickets were sold in 2003. Then nominal GDP = $4.2 billion
To Calculate Real GDP in 2003:
You can follow this procedure with two goods. For example, suppose that in addition to movies, our economy produced popcorn. $1.25 billion in popcorn in 2003, when the price of popcorn was $1.25 an ounce. Suppose that in 2000 the price of popcorn was $1.00 an ounce.
Let Q = quantity (number of movie tickets), P = price
Let 2003 be the current year and 2000 be the base year
Nominal GDP in current year = (Qcurrent year)(Pcurrent year)
Nominal GDP in 2003 = (Q2003)(P2003)
Real GDP in current year = (Qcurrent year)(Pbase year)
Real GDP in 2003 = (Q2003)(P2000)
GDP deflator = (nominal GDP)/(real GDP)
With two goods, A and B, real GDP in 2003 =
(QA2003)(PA2000) + (QB2003)(PB2000)